Is it true or false? The inflation risk premium theory implies that, in normal circumstances, we can expect an upwards-sloping yield curve in the fixed-interest bond market.
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Is it true or false? The inflation risk premium theory implies that, in normal circumstances, we can expect an upwards-sloping yield curve in the fixed-interest bond market.
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- If the yield curve in the bond market shows a flat curve, what do you think about the prediction of the liquidity premium in explaining this phenomenon? Then do you prefer the prediction of expectation theory in explaining this phenomenon?Assuming the pure expectations theory is correct, an upward-sloping yield curve implies:a. Interest rates are expected to increase in the future.b. Longer-term bonds are riskier than short-term bonds.c. Interest rates are expected to decline in the future.Under the expectations hypothesis, if the yield curve is upward-sloping, the market must expect an increase in short-term interest rates. True/false/uncertain? Why?
- a rise in risk premium will cause bond market prices to rise? true or false?Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.Assume that inflation is expected to decline in the near future. How could this affect future bond prices? Explain.
- Consider the liquidity premium theory. If a yield curve looks like the one shown here, what is the market predicting about the movement of future short-term interest rates? Distinguish between the flat part of the curve and the part with the increasing slope. Yield to maturity Term to maturityWhat is the relationship between forward rates and the market’s expectation of future short rates? Explain in the context of both the expectations hypothesis and the liquidity preference theory of the term structure of interest rates.1. What is the Shape of the Yield Curve today? What does that suggest that the Market is pricing into the future of interest rates? 2. Why should we care what the Term Structure of Interest Rates looks like? 3. What does a Bond Rating tell us about the bond's risk? What does it not tell us about the risk of investing in the bond? 4. The Expectations Theory of the Term Structure of Interest Rates implies that the term structure is the result of expected inflation rates in the future. What else might cause the term structure to be what it is, that might not be in the Expectations Theory?
- Which of the following statements is CORRECT about the yield curve? A) The yield curve shows the behaviour of interest rate forecasts. B) When short-term rates are lower than long-term rates, there is a downward-sloping yield curve. C) A downward-sloping yield curve shows that investors demand an additional risk premium for lending money over the long term. D) A downward-sloping yield curve indicates that the market expects a future rise in interest rates.Most evidence suggests that a positive maturity risk premium exists. How would thisaffect your calculations when determining interest rates?Which of the following best explains an upward sloping Treasury yield curve? A. Maturity risk is expected to decline in the future B. Long-term interest rates are more volatile than short-term rates C. Inflation risk premiums are higher for longer terms to maturity D. Default risk is higher for longer terms to maturity